HR and Employee Screening Issues Affecting your Business

Notice:

Information contained in this page is of a general informational nature and nothing herein, or on this website, should be construed as legal advice. For advice on questions of law, please consult a qualified attorney for additional guidance.

Month: May 2013

In what could be a multi-billion dollar negligent hiring civil case, an attorney for the company promoting Michael Jackson’s comeback concert series testified in court Tuesday that the entertainment agency did not conduct background checks for independent contractors.

AEG Live is being sued by Jackson’s mother and three children for negligent hiring, retention or supervision of Dr. Conrad Murray, the physician who was convicted of involuntary manslaughter in the entertainer’s death.

The case illustrates the extension of negligent hiring liability to non-employees, and the importance of conducting background checks not just on direct employees, but also on contractors through a standardized supplier screening program.

Contact A-Check today for information on setting up an effective and compliant supplier screening program for your organization.

FCT Warning Letters Issued to Ten Companies

May 7, 2013 Washington D.C. – The Federal Trade Commission announced it sent letters to ten data broker companies warning the companies’ practices could violate the Fair Credit Reporting Act (FCRA) after a test-shopping operation by the FTC indicated the companies were willing to sell consumer information without abiding by FCRA requirements.

FTC staff members posed as individuals or representatives of companies seeking information about consumers to make decisions related to their creditworthiness, eligibility for insurance or suitability for employment.

Data broker companies that collect, distribute or sell this information are considered consumer reporting agencies under the FCRA, meaning they must reasonably verify the identities of their customers and make sure that these customers have a legitimate purpose for receiving the information. This requirement ensures that the privacy of sensitive consumer report information is protected. Of the 45 companies contacted by FTC staff in the test-shopper operation, ten appear to violate the FCRA by offering to provide the information without complying with the law’s requirements.

The FTC issued the letters this week in conjunction with an international privacy practice transparency sweep conducted by the Global Privacy Enforcement Network (GPEN). The network connects privacy enforcement authorities to promote and support cooperation in cross-border enforcement of laws protecting privacy. Several GPEN members from countries around the world are taking steps this week to ensure that companies meet their obligations related to the privacy of consumers’ personal information.

The ten companies receiving the warning letters from the FTC include:

Two companies that appeared to offer “pre-screened” lists of consumers for use in making firm offers of credit: ConsumerBase and one additional company;

The letters are not an official notice by the Commission that any of the named companies is subject to the requirements of the FCRA, nor do the letters lay out any formal complaints against the companies. Instead, they serve to remind the companies to evaluate their practices to determine whether they are consumer reporting agencies, and if so, how to comply with that law.

Colorado Restricts use of Credit reports for Employment

Effective July 1, 2013, Colorado will join California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington to become the ninth state to pass legislation restricting the use of credit reports in the applicant screening process. There are approximately 20 other states that have similar pending legislation so we anticipate this trend to continue in the near future. In response, A-Check is advising Colorado employers that utilize credit reports in their applicant screening process to evaluate and reassess their practices and procedures prior to the law’s effective date including a review of your background screening forms, including but not limited to the Consumer Disclosure/Authorization and Adverse Action notices, to incorporate Colorado’s requirements.

What Does this Mean to Colorado Employers?

Who? The law applies to private sector employers with four or more employees.

Exemptions: Banks and/or Financial Institutions and employers who are required by law to procure consumer credit information can continue to utilize credit reports in their hiring process provided they abide by the new law’s additional adverse action requirements – discussed later in this document.

What? In general, the new Colorado law prohibits employers from using “consumer credit information” for employment purposes unless the information is “substantially related to the employee’s current or potential job” unless they are one of the exception employers.

Substantially Related to the Position Defined:

A position that constitutes executive or management personnel or their immediate staff with the following job responsibilities:

sets the direction or control of a business, division, unit or an agency thereof;

owes a fiduciary responsibility to the employer;

has access to customers’, employees’ or the employer’s financial information; or

has the authority to make payments, collect debts or enter into contracts.

A position that involves contracts with defense, intelligence, national security, or space agencies of the federal government.

How? How can a Colorado Employer stay in compliance if using a Credit Report?

Ensure the positions you are utilizing credit reports for meet the criteria defined by the legislation.

Provide the job candidate detail regarding the “bona fide purpose” for using credit reports for the position they are applying for. A-Check recommends you utilize your Consumer Disclosure and Authorization to communicate your purpose to the applicant however, the law is silent as to when this disclosure must be made and does not define the term “bona fide purpose.”

Adverse Action Requirements: The new CO law also expands requirements for employers when taking adverse action based on information in a credit report. Under this law, a Colorado employer is required to (1) provide disclosure to the applicant that it relied on credit information to make an adverse decision, (2) must note the specific information which the employer relied upon, and (3) must use the same media in which the application was made. Although the law does not detail when the disclosures must be made, in order to comply with the Fair Credit Reporting Act as well, A-Check recommends that employers do so prior to making any employment decisions.

A-Check Summary

Unless, (1) you are a bank or financial institution; (2) the report is required by law; or (3) the report is substantially related to the employee’s current or potential job and meets the additional requirements detailed above; an employer may not require an employee to consent to a request for a credit report that contains information about the employee’s credit score, credit account balances, payment history, account balances and the like as a condition of employment.

A-Check recommends two considerations when developing your policy and procedures to cover this aspect of your screening:

The current focus of the EEOC is on employment hiring practices that create potential barriers of employment, including the use of credit information in employment. Therefore you may consider that when utilizing consumer credit information to make adverse hiring decisions to make it policy to afford the applicant or employee an opportunity to explain any unusual circumstance that led the occurrence. (e.g. error, lay off, identity theft, medical expenses etc. ).

The Consumer Reporting is quickly changing trending towards increases in regulation. All employers are advised to be aware of their policies in this respect and to keep abreast of developments in this area of the law.

If you have any questions regarding the contents of this document or for a review of your current Consumer Authorization and Disclosure form, please contact A-Check’s Compliance Department at 877.345.2021 or via email at compliance@acheckamerica.com.